Viscount Haldane:- In this appeal the question is upon what amount the Wallaroo and Moonta Mining and Smelting Company, Limited, represented by the appellant as its public officer, is assessable for income tax in the State of South Australia on the profits for the year ending 31st December 1903. The Taxation Act 1884, of the State Legislature imposes a general tax on incomes. This is to be levied on various descriptions of income specified in the first ten sub-sections of S. 12. Sub. S. 11 provides that the net income, as ascertained in accordance with the rules laid down in the preceding sections and after making the deductions therein provided, shall be the taxable amount, except in the case mentioned in sub S. 12. This sub-section prescribes the taxable amount of the income in the case of a company making this amount depend on the profits, whether divided carried to any reserve or in any way capitalized. Its language is as follows : "In the case of the income of any tax-payer being a company dividing its profits amongst its members...the taxable amount shall be deemed to be the amount of profits so divided, with the addition of any amount of profit carried to any reserve fund or capitalized in any way." The appellant made a return of the taxable income within this definition as £ 8000 for the year in question. The Local Court of full jurisdiction at Adelaide, after a prolonged investigation, stated a special case for the Supreme Court and the Supreme Court finally decided that the true amount was £ 147, 694. 10s 4d. made up of certain items detailed in the judgment as follows :- £ s. d. 1. Profits divided - Dividend. 8,000 0 0 2. Profit-carried to a reserve fund Depreciation written off. 22,469 2 0 3. Profits capitalized in any way Additions to fixed assets. 16,007 5 1 Additions of fixed assets written off to working expenses 5,444 3 3 Debentures discharged (less £ 5000 already taxed.) 75,000 0 0 Deposits paid off 20,774 0 0 _________ 147,694 10 4 _________ As to the items of £ 8000 and £ 5444 3s. 3d. no question is raised by the appellant. 16,007 5 1 Additions of fixed assets written off to working expenses 5,444 3 3 Debentures discharged (less £ 5000 already taxed.) 75,000 0 0 Deposits paid off 20,774 0 0 _________ 147,694 10 4 _________ As to the items of £ 8000 and £ 5444 3s. 3d. no question is raised by the appellant. The decision as to the other items depends on a single question of principle : ''Were these sums profits made during the year 1903, whether divided, carried to reserve or capitalized?" The Company which came into existence in 1890, had acquired the Wallaroo and Moonta mines, and had carried on the business of mining smelting and extracting copper and precious metals from ores. The nominal capital was £ 400,000, divided into 200,000 shares of £ 2 each of which 40,000 had not been issued. A few years later it extended its works and plant, and for this purpose in 1898 it raised £ 80,000 in debentures. Its business prospered and from time to time it divided large sums in dividends. Prior to 1903 it appears to have employed a substantial part of the profits in making additions to fixed capital to counterbalance amounts written off for depreciation. It also appears to have made further additions and improvements to the works which were debited in the profit and loss accounts under the general heading of "working expenses". It was not, however until the balance sheet for 1903 appeared that the revenue authorities had their attention drawn to the fashion in which profits had been disposed of in capital expenditure of these and other kinds and in deduction of capital liabilities. No question has been raised in the present litigation as to the propriety of not including the part of the profits so disposed of during the years before 1903 in the annual returns for income tax. The only question is whether in 1903 the profits of the year were applied in making up a reserve fund for depreciation in adding to fixed capital and in paying off debentures and deposits in the mode described in detail at the end of the judgment of Way, C. J, in the Supreme Court. For if the profits were so disposed of it is plain that the company was liable to pay income tax upon them under the words of S. 12 sub-S. 12 already quoted. For if the profits were so disposed of it is plain that the company was liable to pay income tax upon them under the words of S. 12 sub-S. 12 already quoted. Before going further, their Lordships desire to say, having regard to the character of the business and the way in which it was conducted, that an investigation of the accounts presented has satisfied them that there was nothing in any law forbidding the payment of dividends out of capital which in the year 1903 would have interfered with the treatment by the company of the amounts in question as profits available for division had this course been decided on. Apart from the fact that the original capital raised by the issue of shares was in reality intact, the general assets appear to have been steadily increased by the accumulation of ore capable of being disposed of at a profit. When this ore was disposed of it seems to have been the practice of the company to apply, out of the prices received, substantial sums in reduction of loans and in other ways which increased the balance of assets over liabilities. The details of these operations, which were performed over a series of years, are nowhere to be found disclosed with fullness in the annual balance-sheets or profit and loss accounts. But when these documents are read in the light of the annual reports it is not difficult to understand the operation of the method adopted. Their Lordships now turn to the accounts. The balance-sheet of 31st December 1902 shows a liability on the debit side of £80,000 in first mortgage debentures. This amount disappears in the balance sheet of 31st December 1903. As to this disappearance, it is necessary to turn to two further documents in order to make it intelligible. The first of these is the profit and loss account of 1903, which shows the extinction of £5000, by means of a debenture redemption fund of that amount provided out of profits. This account also contains a credit item described "as balance of Copper account. £ 312, 452 11s. 4d." What is meant by the use of the word ''balance'' does not appear in the account itself, but their is a directors' report annexed to it which makes clear what had been done. This account also contains a credit item described "as balance of Copper account. £ 312, 452 11s. 4d." What is meant by the use of the word ''balance'' does not appear in the account itself, but their is a directors' report annexed to it which makes clear what had been done. This report says : "The price obtained for copper during the year was £ 5. 14 s. 1d. more than during 1902. This, together with the gradual realization of all surplus ores and products has enabled the board to pay off the whole of the debentures and nearly all the bank overdraft and deposits". The latter amounted together to £ 20,774 and form the item of the amount which appears in the judgment of the Supreme Court. The appellant gave evidence on behalf of the company before the Local Court, and in the course of it stated that "Including debentures, the liabilities of the company were reduced in 1903 by £ 100, 774. In addition £ 15,700 was spent on plant. The money came from produce and realization of assets on hand at beginning of the year, after paying all charges shown in the accounts, except some which were only estimated. The assets were substantially produce on hand from preceding years." What these assets were is perfectly clear. They were mineral produce on which the cost of production had been paid and which were in hand for realization as available profit of operations in the year 1903. This disposes of the largest items in the list of those on which the Supreme Court decided that the company should be assessed for income tax. There remain two further items appearing in that list, the £ 22,469 2s. written off for depreciation and the £ 5444 3s. 3d. of additions to fixed assets written off to working expenses. As to the latter item, it has been admitted by the appellant that this must be taxed as being a payment out of profits. As to the former, the details which make it up appear in the report for 1903, and from this supplemented by the profit and loss account for the year, it is evident that the whole amount was paid out of profit. It is true that in the accounts there is little that amount to specific appropriation. As to the former, the details which make it up appear in the report for 1903, and from this supplemented by the profit and loss account for the year, it is evident that the whole amount was paid out of profit. It is true that in the accounts there is little that amount to specific appropriation. The reason is the peculiar practice of the Company in making out these accounts. That practice was, as pointed out by Way, C. J. to treat all the moneys of the company, whether derived from the original shareholders' capital, borrowed, got by the sale of products or in any other way, as one mixed or common fund. Out of this common fund all payments were made and the payments were not appropriated to any of the sources of the fund. One consequence of this practice is that there is nothing in the accounts to show the amounts of money attributable to these sources which were carried to reserve or spent in extensions or improvements of the works. But even if there had been such an appropriation it would not have affected the fact that the amount thus written off for depreciation in 1903 was provided out of profits which quite legitimately could have been divided. Their Lordships agree with an observation made by Way C. J. in this connection : "Moreover", said that learned judge, "Knowing that the Commissioner would have assessed the amounts expended on the extensions of the company's works if he had understood that a reserve had been created or was being capitalized, the company paid for such works out of the common fund and purposely refrained from appropriating the payments against what was written off for depreciation or any constituent portion of the common fund. Besides all this, the company had escaped taxation year after year by denying in its taxation returns that it had carried profits to a reserve fund or capitalized profits in any way. Although I disclaim imputing to the company any intentional misrepresentations. I do not understand how it justifies the denial year after year that it carried any profits to a 'reserved fund'. Although I disclaim imputing to the company any intentional misrepresentations. I do not understand how it justifies the denial year after year that it carried any profits to a 'reserved fund'. The reserve for depreciation was as much a 'reserve fund' as the £ 5000 expressly set aside in 1898 as a 'debenture redemption fund' and the company could not help knowing that the Commissioner in refraining from assessing the amount written off for depreciation, was acting on the faith of the company's denial year after year that any profits were being carried to a reserved fund." It is sufficient for their Lordships to say that with this view of the proceedings of the company they are in accordance, and that for the reasons which they have given, they agree with the rest of the judgment of the Supreme Court and with the particular findings in which that judgment resulted. They will humbly advise His Majesty that this appeal should be dismissed with cost. Appeal dismissed.